Yesterday, Republican Congressman Tom Emmer introduced the state’s CBDC Anti-Surveillance Act. emmer saying the goal is to prevent “unelected bureaucrats” from “stripping Americans of their right to financial privacy.” Most will appreciate Emmer’s goal. However, the bill may need to be more than three succinct pages to achieve that goal.

The document prevents the Federal Reserve from issuing a central bank digital currency (CBDC) directly to consumers or allowing individuals to have an account directly with the central bank. That means any digital dollars would have to go through intermediaries and favors a token-based CBDC.

If the bill were to be enacted, it is still conceivable that intermediaries such as banks would be required to share personal data with the central bank. However, the Federal Reserve has stated that its goal is to ensure privacy. The central bank will likely still require banks to implement anti-money laundering (AML) processes for any CBDC.

During the Covid trucker protests, Canada demonstrated that these AML protocols can be hijacked for other purposes. That recent precedent makes it more difficult for all central banks around the world to make the pro-privacy CBDC case. However, the Canadian example highlights that these kinds of privacy challenges apply to any regulated money, not just CBDCs. A CBDC could accelerate the decline in the use of cash for payments, bringing more transactions to the AML surveillance network.

So, to protect privacy, there should be some block on any government department, including the IRS, making use of CBDC transaction data. It is possible to enforce AML in a privacy-preserving way when a bank processes AML checks but only shares details of highly suspicious transactions, such as a wallet that received or sent money to a questionable address. Current AML systems result in large volumes of private banking transaction data being unnecessarily shared with multiple agencies.

So for a privacy friendly CBDC, the AML processes need an update. Maybe that could come in a separate bill.

Emmer’s bill also prevents a CBDC from being used for monetary policy, effectively prohibiting it from paying interest and thus protecting banks. In addition, the central bank must consult with each regional Federal Reserve about the pilot program and report to Congress on progress.